 Exit Dynamics of Start-up Firms: Does Profit Matter?Rolf Golombek and Arvid Raknerud No 5172, CESifo Working Paper Series from CESifo Abstract: We estimate by means of indirect inference a structural economic model where firms’ exit and investment decisions are the solution to a discrete-continuous dynamic programming problem. In the model the exit probability depends on the current capital stock and a measure of short-run profitability, where the latter is a state variable which is unobserved to the econometrician. We estimate the model on all start-up firms in the Norwegian manufacturing sector during 1994-2012, and find that both increased short-run profitability and a higher capital stock lowers the exit probability - this effect is statistically significant in all industries. We show that the difference in annual exit probability between firms that exited during the observation period and firms that did not exit is highly persistent over time, and there is no tendency for a sharp increase in the estimated exit probability just prior to exit. Hence, it is the cumulated effect of higher risk of exit over several years - compared with the average firm - that causes exits. Keywords: exit; investments; indirect inference; continuous-discrete choice; monopolistic competition; costly reversibility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5172 Access Statistics for this paper More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.